A well-known adage about human endeavors is that “history repeats itself.” I prefer an equally popular but more optimistic adage: “Those who do not know history are doomed to repeat it.” Before you say “gee, if that’s your idea of optimism, remind me not to invite you to my Stanley Cup Finals party,” note the hope that by knowing history we may be able to avoid prior pitfalls. With this in mind, I have been reveling in the great new book release for all telecom, tech, broadcast, and internet lovers — Thomas Hazlett’s “The Political Spectrum” (Yale University Press, 2017), which looks at the history of the communications industries. If you are lucky enough to know Hazlett (as I do) or have seen a talk by him (as I have), you know he is a tour de force. A former Federal Communications Commission (FCC) chief economist, he’s a scholar, a professor, and a man of great, diverse knowledge in all things telecom and broadcast (and he’s very funny).
For the past decade, many of us have watched the resurgence of Title II regulation with dismay. Title II is a 1934 public utility regulation that has slowly been dying a welcome death. The economic drag such regulation puts on innovation and consumer welfare has been written about by myself and fellow TechPolicyDaily.com bloggers in posts, scholarly papers, amici briefs, and op-eds. In reading “The Political Spectrum,” I am struck by how similar the rationales for regulation of the internet are to those that we heard for the regulation of radio, cable, broadcast, and satellite in days of old. It is always “scarcity” or “lack of competition” or “technical problems.” The real reasons for regulation are often completely unrelated to the stated rationales — regulation helps consolidate power, protects incumbents from competition, and provides politicians and regulators the means to extract concessions from private companies they would not otherwise have the right to.
Take for example the FCC’s historic claim regarding why cable should not compete with broadcast licensees — “to protect localism, diversity of expression, and public affairs programming.” But as Hazlett notes:
News and public affairs programs, touted as the heart of the “public interest” in broadcast regulation, were minuscule in the [early days of broadcast] wasteland. In the early 1960s the three broadcast TV networks programmed just fifteen minutes of news per day. As late as 1973, CBS aired just ninety-two hours of news programs for the entire year. The conventional wisdom was that the American viewer simply was not interested in news or documentaries.
Contrast that with what happened after the deregulation of cable:
Innovative 24/7 news and public affairs networks emerged, scheduling scored of hours per week. The political, social, and cultural diversity of content vastly increased. Specialized programming networks radically altered the “lowest common denominator” approach [one former FCC Commissioner] had attributed to broadcaster greed and sloth.
But what about scarcity? Won’t scarce resources — spectrum for wireless or capital for infrastructure — inevitably lead to monopolization and consumer exploitation? Harvard’s Susan Crawford once again hit that concern in a recent New York Times op-ed (0) by claiming the dearth of internet service provider (ISP) competition will lead to the chocking of outlets for would-be internet content providers. Putting aside that she implicitly acknowledged a fact she has doggedly ignored for years, which is that noncable ISPs provide broadband access too, the argument that scarcity must inevitably lead to government regulation is the oldest argument in the telecom-broadcast history.
As Hazlett eloquently comments, “with gravitational regularity, deep irony has been observed: [T]o ameliorate a purportedly unique form of ‘physical scarcity [of spectrum for licenses],’ policies have restricted competition far more tightly than the asserted natural constraints.” Hazlett rightfully points to Ronald Coase during these commonplace, scarcity-made-me-regulate arguments. Hazlett quotes Coase’s decades-old observation that
It is a commonplace of economics that almost all resources . . . are limited in amount and scarce, in that people would like to use more than exists . . . It is true that some mechanism has to be employed to decide who, out of the many claimants, should be allowed to use the scarce resource.
Complementing Coase’s insight, Hazlett notes that Coase saw that the politicization of radio spectrum had led to circular arguments. “The broadcasting market was said to have fail, but the state had suppressed the process by which coordination occurs . . . [G]overnment had assumed the role of central planner.”
That is not to say that market concentration may not be of concern and at times need government intervention — such as antitrust scrutiny — to ensure that the benefits of competition are maximized when possible. Some commentators may go further and claim that market concentration indicates “market failures” that warrant even greater government intervention (i.e., regulation). But Coase (and Hazlett) go on to state the greater issue to contemplate. As Hazlett puts it, “the concept of market failure [sh]ould not be considered in absolute terms. Its existence ha[s] to rest on the relative success of government intervention.”
In other words, comparing the imagined costs or risks to consumers of imperfect competition to the potential benefits consumers might realize from a hypothetical, idealized, and omnipotent regulator is irresponsible. Past highly intrusive regulatory regimes have been justified on just such faulty comparisons. These regimes did not work well in the past, and they will not work well now. Let’s not repeat history.